Ace-Agro Development Corp v CA

G.R. No. 119729 January 21, 1997

Art. 1231 – How obligations are extinguished 

Facts:

·          Petitioner Ace-Agro Development Corporation had been cleaning soft drink bottles and repairing wooden shells for private respondent Cosmos Bottling Corporation, rendering its services within the company premises in San Fernando, Pampanga.

·          The parties entered into service contracts which they renewed every year.

·          A fire broke out in private respondent's plant, destroying, among other places, the area where petitioner did its work. As a result, petitioner's work was stopped.

·          Petitioner asked private respondent to allow it to resume its service, but the latter advised the former that on account of the fire their contract was terminated.

·          Petitioner requested for consideration "cushion the sudden impact of the unemployment of many of workers." But no reply from the respondent.

·          Petitioner informed its employees of the termination of their employment, which led to the filing of a complaint by the petitioner’s employees for illegal dismissal before the Labor Arbiter.

·          Petitioner reiterated its request for reconsideration by the respondent.

·          In response, private respondent advised petitioner that the latter could resume the repair of wooden shells under terms similar to the original contract, but work had to be done outside the company premises.

·          Petitioner refused the offer, claiming that it would incur them additional costs for transportation which "will eat up the meager profits that it realizes from its original contract with Cosmos."

·          Then, Cosmos advised petitioner that the latter could then resume its work inside the plant in accordance with its original contract with them.

·          But petitioner rejected Cosmo's offer, citing a pending labor case.

·          Petitioner brought this case against respondent for breach of contract and damages due to illegal and arbitrary termination of its service contract.

Issue:

WoN the unilateral termination of the service contract by the Cosmos on account of a force majeure extinguished obligation.

Held:

            Yes, the Court holds that there are other causes of extinguishment of obligations which are not expressly provided for in Article 1231 of the New Civil Code.

            In some contracts, either because of its indeterminate duration or because of the nature of the prestation which is its object, one of the parties may free himself from the contractual tie by his own will (unilateral extinguishment).

In the case at bar, Cosmos unilaterally terminated the agreement it had with the petitioner because the fire practically burned all of the softdrink bottles and wooden shells, which respondent was working on under the agreement. 

Cosmos implied that the prestation or the object of their agreement had been lost and destroyed in the said fire. Apparently, such situation will fall within what — according to Tolentino — would be:

xxx (O)bligations may be extinguished by the happening of unforeseen events, under whose influence the obligation would never have been contracted, because in such cases, the very basis upon which the existence of the obligation is founded would be wanting.

           Thus, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED.